Marty's Landscaping, Inc.

Danger of Business Failure

George J. Davis, a management consultant, received an urgent call from Wendell Martin, owner of Marty's Landscaping. The business was located on a country road 10 miles north of Atlanta. It had fallen on hard times, and the owner was seeking help that would enable it to survive and eventually prosper.

When Davis attempted to make his first visit, he experienced difficulty in finding the place of business. He passed it four times and made two inquiries before he was able to recognize it. Eventually, he saw a portable sign with the name of the business sitting back about 100 feet from the road. It was hard to see because a bulldozer and two pickup trucks were parked in front of the office building, making the business look more like a construction company than a landscaping company. As he drove up the curved gravel drive, he had to swerve to miss potholes filled with rainwater. He parked the car in a small gravel parking lot to the left of the building. The walkway leading to the building was gravel with round stepping-stones spaced evenly apart. Tallgrass mixed with wildflowers bordered one side of the building. Behind the office building in what appeared to be a large open field were two pole barns that housed the company's equipment. Several acres of land appeared unused.

Upon entering the office building, Davis found a spacious outer office with several pieces of office furniture and equipment, all of which were dusty and ill kept. There was no one in the reception area. Finally, a man (who later proved to be the landscape architect) appeared from an office at one side of the reception area. Upon asking to see the president of the company, Davis was escorted to an office at the opposite side of the reception area and introduced to Wendell Martin.

In the discussion that followed, Martin explained that he had started the business five years earlier with money he had borrowed from friends and relatives and that the current value of the land and buildings was approximate $200,000. $75,000 remained on the mortgage. He further explained that for the first three years, he had sacrificed to make his business grow, putting in 80 hour work weeks and reinvesting everything he earned back into the business. By the end of the third year he had repaid his friends and relatives the money they had loaned plus an attractive rate of interest, and he had built a respectable customer base, but still, profits were not what he had hoped. Eight months into the current year, the business is operating at a loss.

Martin also explained that he believed the company's major problem arose from the loss of two contracts. The company had been doing landscaping for two major builders of apartment complexes in the Atlanta area, and both had stopped construction because of overbuilding in the area. Although Marty's Landscaping lost the revenue from designing and installing new commercial landscaping from these sources, the company continued to do maintenance work at the various apartment complexes constructed by these builders.

The firm employs 10 employees who work at the various job sites, the landscape architect and three part-time office assistants. Martin does not employ a sales person because he prefers to call on prospective clients himself. He feels that as the owner of the company, he is the one who can best represent it.

Martin also believed they were losing money because of heavy payments on leased landscaping equipment they were no longer using because of the lost contracts. He felt that turning the leased equipment back might tend to destroy the company's credit. Also, the vehicles could be purchased at an attractive price at the end of the lease. Although the company had no commercial contracts for new construction landscaping at this time, Martin was certain new business would fall their way in the near future and wanted to keep the equipment.

Martin also mentioned that they were considering going into the nursery business as a move to tum the landscaping business around. The two businesses were complimentary and they owned enough land to support both businesses. He had not yet considered what market to target. Although Martin had never researched the nursery industry, he felt that he had talked with the owners of the two wholesale nurseries from which he purchased his supplies enough to get a good feel for how such businesses operated. What he didn't know he would learn along the way.

In addition to the nursery business (or instead of), Martin was also considering shifting his focus from commercial to residential landscaping. Atlanta had many affluent residents who could be targeted for landscape design. Although commercial construction was slow, construction of new homes in the $400,000 plus price range was going strong.

Davis received a copy of the balance sheet and income statement for the latest eight months. (See figures C2-1 and C2-2.) In the letter accompanying the report, the CPA noted that management had failed to make a11 the disclosures required by Generally Accepted Accounting Principles.

After reviewing the statement, Davis asked about the nature of two accounts receivable items, "Green Valley Ranch" and "Green Valley Youth Retreat." It was explained to him that these receivables related to work done on a 75-acre piece of land about a one-half mile from the landscaping business. Martin had purchased the property for $150,000 a few years earlier with the intention of developing it into a retreat site. The property was estimated to have a current value of $165,000, the approximate amount of the refinanced mortgage on the property. However, the ranch and youth retreat was maintained as a venture completely separate from Marty's Landscaping. The accounting statements for Green Valley Ranch and Green Valley Youth Retreat were not available.

Wendell Martin gave a tour of the Green Valley Ranch. He explained his own religious interest and his intention to build the center primarily, though not exclusively, for religious gatherings. The area appeared ideal for a retreat site, but only some development had been done. There was no work currently in progress. A tractor stood in a field of high grass. There was one partially completed barracks building, some stacks

Of lumber, one graded sports field, and a small lake. Martin quickly estimated that some

$400,000 to $500,000 would be needed to complete the project even if the equipment were available to clear and grade the area were buildings were to be built.

Even though business had turned sour, Martin wanted to take the steps necessary to rescue his firm and make it a winner. Additional funds were needed, but the firm had no additional collateral to pledge for a loan. "What can I do," he asked Davis, "to avoid bankruptcy and become profitable again?"

QUESTIONS

1. Evaluate the present condition of this business and its prospects for the future.

2.Evaluate Martin's idea of opening a nursery as a means of strengthening the business.

3.What steps can you, as a consultant, recommend to improve the business?

4. What appears to be the primary causes of the present dilemma? Were they avoidable?

5. What additional information (if any) do you need in order to thoroughly analyze this case and make a quality recommendation?Read the story and answer the 5 questions with thorough detail.

Marty's Landscaping, Inc. Balance Sheet August 31,200 ASSETS Current Assets: Cash Accounts receivable Accounts reccivable, Green Valley Ranch Accounts receivable, Green Valley Youth Ret Inventory Prepaid expenses $390 92,376 104,848 51,172 23,244 54,746 Total current assets $326,776 Fixed assets Transportation cquipment Machinery and equipment Other equipment and furniture $178,048 40,216 29,972 S248,236 195.844 ss accumulated depreciation Total fixed assets 52,392 TOTAL ASSETS 379,168